Increasing minimum wage: Higher pay may be greater cost than we think

April 7, 2013

MARTINSBURG - For Martha Ehlman, the question of whether or not to raise the minimum wage is simple to answer.

Ehlman owns Ten Fold Fair Trade Collectibles - a boutique in lower Harpers Ferry - where she and her employees sell the wares of artisans from around the globe at prices that give them living wages.

"If I'm trying to make a sustainable wage for those in marginalized societies, I certainly support sustaining our own workers," Ehlman said.

The federal minimum wage is currently $7.25 per hour. The Fair Minimum Wage Act of 2013 would raise this to $10.10 per hour in three increments of 95 cents each.

According to Sean O'Leary, policy analyst at the West Virginia Center for Budget and Policy, this wage increase would affect about 191,000 workers in the state. Citing a report from the Economic Policy Institute that gives state-by-state breakdowns of the legislation's impact, O'Leary said workers would see an increase in wages of $2,400 annually.

While questions arise regarding an increased wage's effect on the job market, one economist said the results of studies addressing the issue aren't clear.

"Proponents will say unemployment hasn't gone up, people haven't lost their jobs," said Mark Wilson, principal of Applied Economic Strategies.

"When you look at the economy as a whole, it's difficult to figure out where the impact actually (is)."

Wilson said the bigger question legislators should try to answer is who will pay for this wage increase.

"It's not free when the government mandates that workers' wages rise in the labor market," Wilson said. "That cost of production has to be borne by somebody."

Cost can come in a variety of manners from an employment effect on young, unskilled workers, a small increase in prices and an increase in productivity, Wilson said. However, Wilson said it is small businesses that are most affected by this cost.

"It's typically the small businesses that have to adjust and adapt, especially when you're talking about a fairly large increase," Wilson said.

In contrast, O'Leary pointed out a few of the benefits of increasing the minimum wage. Workers tend to be more satisfied with their jobs when making higher wages. This results in less turnover, O'Leary said.

"Paying out more in wages (means) paying less in training and rehiring," O'Leary said.

Increasing the minimum wage can also have a positive impact on local economies, O'Leary said.

"Most of that money goes directly back into the economy and back into businesses," O'Leary said.

Despite the positives, Wilson said legislators and the public should remain cautious about raising the minimum wage, which he said can lead to greater inflation and higher interest rates.